Brascan, the Canadian property company, could lose its investment grade credit rating if it emerges victorious in the takeover fight against Morgan Stanley for Canary Wharf, the UK property group.

Moody's Investors Service placed Brascan's Baa3 debt rating, which is already on the cusp of high-yield, or junk status, on review for a possible downgrade, pending the outcome of the Canary Wharf battle.

Brascan, which is being advised by Deutsche Bank and Merrill Lynch, raised its bid for Canary Wharf to 270p per share on Thursday, valuing the deal at £1.58bn (€2.3bn). Morgan Stanley responded by increasing its own offer to £1.6bn, or 275p per share. The US bank has the backing of Canary Wharf's independent directors, who are being advised by Lazard and Cazenove.

Brascan, whose bid is being conducted through a vehicle called CWG Acquisition, has put in place debt facilities worth £800m to help fund its bid, conditional on the company buying at least 75% of Canary Wharf shares.

Moody's said that it will not downgrade Brascan's rating if CWG Acquisition acquires between 75% and 100% of the Canary Wharf shares and brings in external investors.

However, the rating agency warned that Brascan could be cut to junk status if only 50% to 75% of the shares are tendered and the company fails to bring in new investors. Moody's said Brascan's financial commitment to Canary Wharf could increase by as much as $1bn in that case.

The agency said: "In the event that Brascan's financial commitment increases [to $1bn] from the contemplated level of approximately $390m, Moody's review will focus on the manner in which this commitment is funded."